Maola Ice Cream Co. v. Maola Milk & Ice Cream Co.

77 S.E.2d 910 (1953) 238 N.C. 317

MAOLA ICE CREAM CO. OF NORTH CAROLINA, Inc.
v.
MAOLA MILK & ICE CREAM CO.

No. 19.

Supreme Court of North Carolina.

October 14, 1953.

R. E. Whitehurst, New Bern, for defendant-appellant.

Rodman & Rodman, Washington, for plaintiff-appellee.

PARKER, Justice.

The plaintiff bases its action upon unfair competition. These facts are clearly stated in the complaint and amended complaint. 1. In 1935 F. E. Mayo & Co., Inc. owned an ice cream plant in Washington and another ice cream plant in New Bern: from both plants the company manufactured, distributed and sold ice cream under the trade name or trademark "Maola." 2. During the time the company owned both plants there existed between the two plants a welldefined division of territory. The territory served by the Washington plant consisting generally of that part of Eastern North Carolina north of Vanceboro, and that served by the New Bern plant the town of Vanceboro and southwardly. 3. In 1935 the company sold to H. L. Barnes and wife, the defendant's predecessors in title, the New Bern plant, and it was clearly understood, and the agreement of sale so provided, that the use of the trade name "Maola" was limited to the territory theretofore served by the New Bern plant. 4. From then until March 1953, with one or two rare exceptions along the border of the respective territories, the territorial division theretofore existing was observed by the defendant and its predecessor and the plaintiff and its predecessors. 5. In March 1953, the defendant purchased a dairy in Williamston, North Carolina, in territory theretofore continually and exclusively served by the plaintiff and its predecessors, and from said dairy began the distribution and sale of ice cream products in cartons carrying an identical trademark "Maola", as those used by plaintiff. 6. That this has created untold confusion and uncertainty on the part of the buying public as to the identity of the manufacturer, is unfair competition, and unless the defendant is restrained from such acts in plaintiff's territory, plaintiff will suffer irreparable injury. 7. A predecessor in title of plaintiff in 1944 registered in the Secretary of State's office the trademark "Maola", and in 1947 the trademark was assigned to plaintiff, who is now the owner.

It is well-established law that F. E. Mayo & Co., Inc. had the legal right to sell and assign its New Bern plant with the business of that plant and the right to use the trade name or trademark "Maola" on ice cream there manufactured, distributed and sold, and Barnes and wife succeeded to all the rights of the transferor with respect to the use and enjoyment thereof, except as such use and enjoyment may have been restricted by a valid contract. Cowan v. Fairbrother, 118 N.C. 406, 24 S.E. 212, 32 L.R.A. 829; Morehead Sea Food Co. v. Way, 169 N.C. 679, 86 S.E. 603; Ely Lilly & Co. v. Saunders, 216 N.C. 163, 4 S.E.2d 528, 125 A.L.R. 1308; 52 Am.Jur. pp. 526 and 530; 38 C.J.S., Good Will, § 7, page 954; 63 C.J. p. 518. The rights of the parties with respect to the use of trade names or trademarks involved in a transaction may be governed or restricted by contract between them. Morehead Sea Food Co. v. Way, supra; 52 Am.Jur. p. 530; 63 C.J. p. 518.

Goodwill exists as property merely as an incident to other property rights, and is not susceptible of being owned and disposed of separately from the property right to which it is incident. Goodwill may adhere to the reputation acquired by an established business, the right to use a particular name or trademark. 38 C.J.S., Good Will, § 3, pages 951 and 952, where the cases are cited.

A sale of a business and its goodwill carries with it the implied obligation that the seller will in good faith do nothing to impair the advantages and benefits which the purchaser has acquired by the purchase. While there is some authority apparently to the contrary, the weight of authority seems to be that, in the absence of agreement as to the right to compete, the vendor of a premises and its goodwill is not precluded from engaging in a similar business in the vicinity, provided he does not interfere with the purchaser's enjoyment of the premises sold, and provided that he does not engage in unfair competition. Morehead Sea Food Co. v. Way, supra; 38 C.J.S., Good Will, § 12, page 957.

The plaintiff alleges in its pleadings that F. E. Mayo & Co., Inc. owned the Washington and New Bern Plants, and used the trade name or trademark "Maola", on products sold from both plants; that in 1935 Mayo & Co., sold the New Bern plant with the right to use the trademark "Maola" to a predecessor in title of the defendant. If that were the entire contract, it would seem that the defendant had a legal right to buy a dairy in Williamston and distribute and sell its products there under the trademark "Maola" in rivalry with the plaintiff without being guilty of unfair competition, as there is no allegation in the plaintiff's pleadings that the defendant has changed its cartons and the way "Maola" is placed on the cartons from the manner it has customarily used them with intent to confuse the buying public.

However, the plaintiff alleges in its pleadings that there existed between the Washington and New Bern plants a welldefined division of territory served by each: the territory served by the Washington plant consisting generally of that part of Eastern North Carolina north of Vanceboro, and that served by the New Bern plant the town of Vanceboro and southwardly, and that in the sale of the New Bern plant in 1935 to defendant's predecessor in title it was clearly understood and the agreement of sale so provided that the use of the trade name "Maola" was limited to the territory theretofore served by the New Bern plant. There is no allegation in plaintiff's pleadings that the agreement of sale was in writing, and signed by H. L. Barnes and wife.

The plaintiff contends that when the defendant in March 1953 purchased a dairy in Williamston and began the distribution and sale of its products under the trade name "Maola", it was guilty of unfair competition and that in its complaint and amended complaint it has alleged a good cause of action for unfair competition. That raises for our determination the question as to whether the restriction or more correctly the division of territory in the agreement declared upon in plaintiff's pleadings is valid and enforceable. It seems to be illegal on three grounds.

First. If the alleged agreement was a limitation upon Barnes and his wife, and their successors in title, to do business anywhere in the state of North Carolina, the agreement was not in writing signed by Barnes and his wife. P.L.N.C.1913, Ch. 41, sec. 4, now G.S. Ch. 75, § 75-4, requires such an agreement to be in writing and signed by the party who agreed not to enter into any such business within such territory to be enforceable.

Second. It clearly appears from the alleged agreement that the division of territory was not merely for the purpose of conveying to Barnes and his wife, and their successors, the New Bern plant with the right to use the name "Maola" and to obtain all the patronage of that plant, but also for the purpose of shutting off competition by preventing Barnes and his wife and their successors from engaging in the ice cream business under the trade name "Maola" within all that part of Eastern North Carolina north of Vanceboro. There is no allegation that the plaintiff is serving ice cream products in all Eastern North Carolina or was in 1935. Such a division of territory was not necessary to afford fair protection to Mayo & Co., and interfered with the interests of the public as it prevented, if enforceable, Barnes and his wife, and their successors, from selling its products under the name "Maola" anywhere in North Carolina north of Vanceboro. Such an agreement would suppress and stifle competition, and is void. Culp v. Love, 127 N.C. 457, 37 S.E. 476; Shute v. Shute, 176 N.C. 462, 97 S.E. 392; 3 A.L.R. Annotation 250; Hill v. Davenport, 195 N.C. 271, 141 S.E. 752.

In Shute v. Shute, supra, this court held that an agreement on the part of the vendee of a cotton gin plant that he would not engage or be interested in ginning cotton, or buying cottonseed or seed cotton, for a period of ten years, on the north side of a certain creek in the county, and would remove a gin plant which he was then operating within such territory, the vendor binding himself not to build or cause to be built any ginning plant in such county on the south side of such creek for a period of ten years, was void, because it appeared upon the face of the agreement that this division of the territory was not for the purpose of conveying to the vendee the right to obtain all the patronage of the establishment which the vendor sold to him, but for the purpose of shutting off competition, by preventing the vendee from putting up any other plant or being interested in the establishment of any other plant within all that part of the county north of the creek.

Third. If the agreement declared upon is considered as a restrictive agreement, and not an agreement for division of territory, is it reasonable in its terms and purposes? The answer is No. In the earlier cases there was a tendency to establish as the standard for determining the reasonableness of the contract, the duration of the contract as to time and the extent of the territory in which it was to operate. We have held in earlier cases that the limitation as to space must be set out with the same definiteness as would be required in a deed of conveyance. Hauser v. Harding, 126 N.C. 295, 35 S.E. 586; Shute v. Heath, 131 N.C. 281, 42 S.E. 704.

Under changed conditions and in the effort to make goodwill a valuable asset these tests have been abandoned, and the true test now is whether the restraint is such as to afford a fair protection to the interests of the party in whose favor it is given, and not so large as to interfere with the interests of the public. Morehead Sea Food Co. v. Way, supra; Hill v. Davenport, supra; Comfort Spring Corp. v. Burroughs, 217 N.C. 658, 9 S.E.2d 473; Sonotone Corp. v. Baldwin, 227 N.C. 387, 42 S.E.2d 352. Contracts in partial restraint of trade are still contrary to public policy and void if nothing shows them to be reasonable. Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543, 152 A.L.R. 405. Tested by this standard the agreement that the defendant and its predecessor in title should not engage in the ice cream business under the name "Maola" in Eastern North Carolina north of Vanceboro—and there is no allegation in plaintiff's pleadings that it is now or was in 1935 selling ice cream over all such territory—is greater than is required for the protection of the plaintiff, is detrimental to the public interest, and is unreasonable and void.

Yellow Cab Co. v. Creasman, 185 N.C. 551, 117 S.E. 787, 28 A.L.R. 109; Carolina Aniline & Extract Co. v. Ray, 221 N.C. 269, 20 S.E.2d 59; Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L. Ed. 713; United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141, cases relied upon by the plaintiff, have different factual situations. In none of those cases had one party bought from the other a business with the right to use a trade name.

As to the alleged registration of the trademark "Maola" in the Secretary of State's office by the plaintiff in 1944, the plaintiff has alleged in his complaint that its predecessor in title sold the New Bern plant with the right to use the trademark "Maola" to Barnes and wife in 1935.

Construing the complaint and amended complaint liberally with a view to substantial justice between the parties, and making every intendment in favor of the pleader, G.S. § 1-151; McKinney v. City of High Point, 237 N.C. 66, 74 S.E.2d 440, we are of opinion that the complaint and amended complaint fail to state a cause of action. "We have repeatedly held that, where a complaint states no cause of action, such a defect is not waived by answering. The defendant may demur ore tenus, and furthermore this court may take notice, ex mero motu, of the insufficiency of the complaint in this respect. If the cause of action, as stated by the plaintiff, is inherently bad, why permit him to proceed further in the case, for if he proves everything that he alleges, he must eventually fail in the action". Garrison v. Williams, 150 N.C. 674, 64 S.E. 783, 784; Watson v. Lee County, 224 N.C. 508, 31 S.E.2d 535; Aiken v. Sanderford, 236 N.C. 760, 73 S.E.2d 911, where the cases are cited. The statute which requires liberal construction in favor of the pleader neither requires nor permits the court to construe into a pleading that which it does not contain. Dillingham v. Kligerman, 235 N.C. 298, 69 S.E.2d 500.

The demurrer admits the facts pleaded in the complaint and amended complaint, but it does not admit the legal inferences or conclusions of law set out therein that the registration of the trademark "Maola" in the Secretary of State's office and its assignment to the plaintiff made it the true and absolute owner and holder thereof; that the facts alleged constitute unfair competition, etc. We have held repeatedly that a demurrer does not admit any legal inferences or conclusions of law asserted by the pleader. McKinney v. City of High Point, supra; Bumgardner v. Allison Fence Co., 236 N.C. 698, 74 S.E.2d 32; McLaney v. Anchor Motor Freight, Inc., 236 N.C. 714, 74 S.E.2d 36; Anderson v. Atkinson, 234 N.C. 271, 66 S.E.2d 886.

There was error in overruling the defendant's demurrer ore tenus. The order issuing a restraining order pendente lite will be vacated.

The judgment below is

Reversed.

JOHNSON, J., dissents.